h/t TeaPartyGeazer; According to David Burt, who is famous for profiting from the subprime crash in 2008, investors are underestimating the impact climate change will have on the housing market.
A ‘Big Short’ Investor’s New Bet: Climate Change Will Bust the Housing Market
David Burt was one of the few who predicted the 2008 financial crisis. He’s gambling that history is going to repeat itself soon.
By Geoff Dembicki
Nov 1 2019, 11:25pmIn 2007, almost no one would admit what became obvious in hindsight: The housing market was on the brink of collapse and would take a good chunk of the U.S. economy along with it. Lenders were getting rich, giving home loans to people who couldn’t afford them, investment banks were making a killing by combining those shaky loans into securities, ratings agencies cashed in by certifying those securities as safe and millions of ordinary people got screwed when the whole thing came crashing down.
But David Burt saw it coming. The investor was a consultant at Cornwall Capital, the firm that shorted the subprime mortgage market and made $80 million as some of Wall Street’s biggest firms imploded around it. It was such a spectacular, farsighted bet against the conventional wisdom surrounding the housing market boom that Cornwall was profiled in Michael Lewis’s book The Big Short, and one of Burt’s colleagues was played by Brad Pitt in the movie adaptation. The thing, though, is that many of the risk factors leading up to the crash were fairly easy to spot if you weren’t earning massive profits dependent on ignoring them.
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Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by climate change denial.
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To understand the mechanics of this threat it helps to visualize the market for coastal real estate as a brand new condo tower on the beach. The foundations for this tower are built upon maps drawn by the federal government that seriously downplay the likelihood of sea-level rise and floods. The lower floors are filled with homeowners paying off mortgages on homes that could be chronically flooded within the next few decades. The penthouse is occupied by banks and other investors turning those mortgages into ever more complex investments. Though it’s hard to predict a specific event that knocks this tower to the ground—perhaps it could be a devastating $1 trillion Florida hurricane, or a stampede to the exits by investors once denial of climate dangers turns to fear—it’s clear to anyone paying attention that the entire structure is teetering in the ocean wind.
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Read more: https://www.vice.com/en_ca/article/wjwyy9/a-big-short-investors-new-bet-climate-change-will-bust-the-housing-market
There is no doubt many unwise coastal or floodplain realestate developments are vulnerable to extreme weather. But is this really a climate change issue?
If the sea level was to abruptly rise by several metres, a lot of beach side properties, such as the property recently purchased by the Obamas, would be far more vulnerable to flooding. But how likely is a sudden substantial rise in sea level? The current rate of sea level rise, a few mm sea level rise per year, is unlikely to threaten much. Any property which is so exposed to the sea that a few mm per year of sea level rise could make a difference is a disaster waiting to happen, even without changes in sea level.
Burt, and any other of his fellow climate cuckaloos should put their money where their mouths are.
Yeah, I thought so. All hat, and no cattle.
All beard and no Jihad
It should be obvious to anyone that climate change can affect a lot of things. Man can do little, if anything to stop it. All we can do is prepare.
It may be the preparations that do more damage to the property market in the near term, by causing “vacation” properties and resort areas to lose “value” once people discount the value to pay the higher costs to get there caused by consumption taxes on travel (or as some call it, carbon taxes).
Well he might be right,for all the wrong reasons.
Climate Change?
Or idiotic Climate Change Mitigation Policies?
The believers and insanely gullible rule, on many local planning committees right now,so as they drive the cost of housing ever higher with insane “mitigation” policies,the housing market may indeed fall..
Of course nothing to do with current fiscal trends,negative interest rates,collapsing faith in institutions and a shrinking population of home buyers…
Conversely, as it gets harder and more expensive to subdivide and build along the coastal region, those properties which already exist gain in value.
Even the O’s property shown in the title; the land isn’t usable for farming, and it is low lying, probably boggy soil, mosquito and vermin infested land. It’s only the proximity to the city and the house value placed on the land that makes it desirable.
Hey don’t condemn the property just because a bunch of political hacks are going to hang out there.
Isn’t it amazing that no one is asking how a family that never made anything close to what it takes to buy an 8 figure property is buying an 8 figure property?
Yet insurance companies are not raising rates because of “climate change”, “global cooling”, “global warming”, “climate disaster” or whatever it is this week.
None are stating that their policies will be cancelled in 12 years when the Communists claim the world will be devastated.
None of the big cities’ mayors actually believe it, at least not when they were going to the piggy bank to pay off their public employees: https://www.wsj.com/articles/lukewarm-bond-yields-belie-mayors-climate-alarm-11572303011
Climate change has already made the value of my property skyrocket! Oh! What!? No, no, no … not THAT climate change … but the change in California’s political climate. The supermajority leftist Legislature, and every leftist Municipality who’ve declared themselves “sanctuary cities” … have caused MY Real Estate values to BOOM!! Why? Because I live in a “sanctuary” suburb. A mono-cultural, cost prohibitive, quiet, suburb with top rated schools attended by the children of wealthy executives and business owners. And the new buyers who are fleeing Gavin Newsom’s hardcore leftist sanctuaries for illegal aliens are bidding up prices cobbling together everything they own to escape the rising tide; of illegal aliens, crime, homelessness. and failing schools. The young people who are moving into my neighborhood REFUSE to raise their children in the multi-culti HELL of Sanctuary cities.
Thanks Gavin and coastal leftists!
if insurers keep hiking rates on fictitious climate claims then Id guess some will opt to be uninsured and that might mean some problems when a cyclone hits
but I doubt any sealevel issues will happen for a massively loooong timeframe
There will be coastal development as long as there is taxpayer funded flood insurance. Raise the rates or stop the insurance and coastal properties will no longer be financeable. Modern coastal development philosophy prohibits seawalls and other coastal barriers. Lacking those, damage from storms like Sandy are greater than they need to be; it helps with the current version of the End of the Earth Delusion. So no matter the cause of coastal damage, CO2 will be blamed. My, what a powerful molecule; and it is not even radioactive! (actually, on reflection, it is a powerful molecule; it gives us life!)
National Flood insurance caps out at $250K for a residence and $100K for contents. Anything over that has to be private flood insurance. There are also restrictions as what is covered in areas that are below base flood levels. In addition repetitive claims can cause a rapid increase in your premiums. Yes the premiums are currently artificially low but the elected officials know that a rapid raise in rates is political suicide. So they keep passing stop gap measures and slowly raising rates. Your “solution” would affect more than just coastal properties as any property near water can be in the “A” flood zone.
There will be coastal development because humans like to live near water, or at least spend some time next to it. The only way there will not be coastal development is if the government prohibits it. If sea levels change, new development will happen at the new level.
Geoff Dembicki was successful when he looked at what was actually happening (reality). Now he is looking at a fictional forecast of what could happen. His opinion here is no more relevant then if he wrote and article on property values in Middle Earth when Aragorn dies. It’s not reality and it is not worth anything.
Who knew that CC could crash the economy? Add it to the list.
The climate along cannot crash the economy; but the climate mitigations being forced through government surely will.
The Democrat’s Climate change policy is the real existential threat to both US fiscal health and humanity in general.
And notice that Obama’s massive coastal estate has a big ole WALL.
Going from “climate change” to a real estate disaster to yet anther financial collapse is interesting conjecture.
But climate change is very slow relative to how fast things can turn disastrous in the financial markets.
And weather is faster than climate.
The hurricane destroyed Miami property in 1926 and that financial bubble continued to that fateful September of 1929.
Even destroying most of a city did not change financial history.
The earth quake that destroyed San Fransisco in April 1906 did not take that bull market down.
It was over-speculation and the scandal at the Knickerbocker trust in 1907.
In 1871, the important parts of Europe suffered the Franco-Prussian War. Paris was besieged and bombarded by huge artillery.
Much of Chicago was destroyed in the 1871 fire.
That great global bull market peaked in September 1873 and a long contraction followed.
Interesting, but inadequate financial research.
Alternatively, “Lets write some scare stories to promote panic-driven sales of coastal properties so we, and our friends, can buy on the dip.”
lol. It is, in no particular order:
a) clearly not working in the short term, and,
b) serious financial investors are quite familiar with this kind of trick, and,
c) will be proven wrong in the long term.
Next.
I will protect myself by refusing to buy any property that is closer to the oceans than Gore’s or Obama’s properties. Being so concerned about CC, I’m sure they have determined the safest distance away one should be.
OTOH, if anyone hears of an owner of beach property willing to sell out at a low price to avoid taking a devastating loss from rising seas, please contact me.
Get in the back of the line, jtom. It forms w-a-a-a-a-y over there ;o)
I’ve got my eye on the estate where they film Magnum P.I.. I have $50,000 bucks set aside for it just in case they become desperate to sell. Yeah, I know… “The line forms way over there, H.R.”
Obama lives closer to the shore than does Trump and bought more recently. I’m not worried.
EX-President: Sea at front steps with 9 feet of rise.
Current President: Sea at front steps with 15 feet of rise.
Not a scientific nor peer reviewed study.
I see a net boom, not a bust. Lets say that property values along the coasts go to zero because of rising seas. This just means that housing on higher ground will become more valuable, especially all the new ocean front properties.
But, won’t those same ocean front homes that are flooded because of rising seas become less valuable even if sea levels fell? If the sea level fell to that of prior ice ages, current ocean front properties would either be covered in ice or miles from the shoreline, either of which will depress their relative vaiue.
So called “climate change” is slow, unpredictable and definitely not controllable. Houses built on beaches have always been risky due to random major storms. Climate change is not going to break the housing market! Only idiots can break the housing market as documented in “The Big Short”.
It was weird how the Big Short never mentioned the Fed and lightly underplayed Fannie/Freddie’s role in the collapse. HUGE components.
Talk about bad models…the Fed owned them in spades by continuing to lower rates.
It was well understood in the industry that loans should be priced first by Fannie using their desktop underwriter software. That black box software rarely rejected loans.
I’m still waiting for the claim that climate change will make pizza crusts and french fries soggy.
OMG! It is Worse Than We Thought.
It is Way Worse!!!!!!
New Reaserch Is In:
Studies Suggest Climate Change will make french fries soggy.
MORE:
Research Indicates Climate Change will make pizza crust soggy.
New Climate Models reveal disasterous effects on the food supply. Women, Minorities hardest hit.
The only thing that will “break” the housing market is population decline, which isn’t happening in the U.S. anytime soon. Watch what happens in Japan and Italy.
Coastal damage? Isn’t that what hurricanes do? Do those bimps pay attention to any of that stuff at all?
This does make me glad that I do not live anywhere near a coastal area that meets ocean water. I do live on one of the many, many massive, ancient dunes left over from the last glacial maximum, part of the ancient “scoop” of Lake Michigan, and nowhere near the actual lake shore itself, because that is starting to erode a little at a time every year.
To get the scale of it, when I lived in Chicago, I was one block off North Clark Street, and the cross streets such as Wilson and Lawrence sloped down toward the lake shore, about two miles. When the sewers had to be replaced on Wilson, the construction workers dug down far enough to find large fossilized clam shells from when Wilson St @ Clark St was part of Lake Michigan’s shore LONG LONG AGO. You get the same slope upward toward the Edens Expressway/Rt. 41. Not sure just how far it goes west, but all of that, including Lake Superior and the other Great Lakes, occupied an enormous amount of land that was submerged during the glacial meltback.
Just think – all that expensive real estate in downtown Chicago can easily be submerged if that’s what Mother Nature decides she wants to do. It won’t happen in my lifetime, though, but these things tend to repeat themselves.
Or, maybe the smart money is betting against climate doom and buying discounted investments that “conventional wisdom” fears..
Coastal properties, coal mines, etc
Thank you
I will add this paper to my list
https://tambonthongchai.com/2018/06/21/climate-change-impacts1/
Climate change impacts research has become a cottage industry of sorts where researchers in all disciplines can write climate papers by claiming some kind of catastrophic impact of climate change on something that has to do with their field of study. The unexplained oddity of this line of research is that all impacts are found to be bad with the only solution being climate action. There is no such thing as a good impact apparently. And no such thing as a bad impact that can be dealt within terms of adaptation.
I’m a prolific residential architect in the Seattle area. The Klimate Krazy virus has already infected our building codes. The latest draft of the 2018 WA State Energy Code (scheduled to become law on 7.1.2020) was just released a couple of weeks ago. It codifies Klimate Kraziness into law, penalizing use of natural gas for space heating! Berkeley, CA has already banned new natural gas hookups, and the same proposal is on the table in Seattle, hopefully tomorrow’s election will throw out enough of the socialist nuts on the council to change its direction, but I doubt it.
Achieving compliance with the new energy code will require limited window area, triple glazing, extreme wall, ceiling and floor insulation, ground-source heat pumps, post-construction pressure testing for air leakage, and solar panels. This is for the Seattle area, which is the mildest climate in the USA! A colleague quipped that the new code will require us to design “styrofoam igloos”, while adding tens of thousands of dollars to the cost of a new home. Affordability will be hurt and the stability of the housing market will be damaged.
As a CAGW skeptic, I am regarded as a deviant troglodyte by 98% of my professional colleagues and the great majority of friends and family. It’s no party for conservatarians in Salmonistan!
Good luck…it is hard going through life dealing with craziness in lefties.
From the article: “Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by climate change denial.”
I wouldn’t want this guy doing any investing with my money.
How does climate change denial inflate a real estate market? I suppose what he means is climate change denial (human-caused) will cause more people to feel safe in buying property close to the ocean that will eventually be flooded by sea level rise, which will then cause a stock market crash.
At a sea level rise rate of 3mm per year, how long will it take for this bubble to burst?
Mr. Burt may be a good investor, but the human-caused climate change Lie has clouded his vision. He should stick to studying bank stocks and transactions.
Tom Abbot: “At a sea level rise rate of 3mm per year, how long will it take for this bubble to burst?”
At 3mm per year, his ‘short’ will have to be very long.
Depends on how unstable the WAIS really is. Harlech castle has a sea gate 12 feet above current high tide, and 1/4 of a mile from the sea, 1000 years ago……
Oakland CA has it both ways on sea level rise. In public proclamations they state it is an imminent, $30-$50 billion dollar disaster. However, when they want money from issuing bonds they minimize the risks. See the video below, if Fox News offends, let it go this one time.
A few years back, Santa Barbara supervisors decided that they would paint a line where the oceanfront would shortly be, given climate change and see level rise.
Result:
Beachfront property asked to have their property tax reduced and started depreciating their property.
Properties east of the line started advertising as future oceanfront property.
That’s hilarious 🙂
With his riches, David Burt obviously drank too much Klimate Koolaid at all the Lefty Cocktail parties he’s attended since 2008 b/c of his financial celebrity.
Koolaid that must of fuzzed-out his critical thinking skills.
From all accounts he is an odd fellow that would be seldom seen at cocktail parties.
Determine the new coastline after 25 foot sea level rise. Anything that would be underwater is no longer tax deductible, depreciable, or insurable to disincentivise any future development in these areas.
It’s the safe thing to do.
I live in Arizona. I’m eagerly awaiting the day when my home will be ocean from property–again. Our granddaughter never goes on a walk without bringing back a few sea shells from the time the land was at the bottom of an ocean. It may happen again but I suspect I will be long, long dead when it does.
I live at one of the highest points in Norwich and some 20 miles from the sea. When those Antarctic ice shelves go I will own a beachfront property! The UEA will be totally submerged before that.
I want to see a list of things climate change hasn’t caused. Probably 5 to 10 items long if I had to guess.
Here is a rising sea level fraud – exposed thanks to Dr. Nils-Axel Mörner – in Fairbourne (North West Wales) where scamsters and activists were threatening inhabitants – harassing them with fake news – so that they sell their properties at low prices :
https://www.youtube.com/watch?v=28AJAfjuUX4
I bet David Burt has already massively invested in this climate clownery and he must find his short too long …
Trillion dollar FL hurricane?
When the economy headed south in FL in 07-08, the saying was, “We need another hurricane.” Rebuilding, restoration, and reinforcement makes a hell of an economy for housing. Temporary housing shortages also drive prices up.
Has the housing market collapsed in Holland. They have dealing with far worse for a 1000 years.
ho hum-
About one third of the Netherlands lies below sea level,
Historyhttps://www.globalpropertyguide.com/Europe/Netherlands/Price-History
House prices continue to rise strongly in the Netherlands,
“To understand the mechanics of this threat it helps to visualize the market for coastal real estate as a brand new condo tower on the beach. The foundations for this tower are built upon maps drawn by the federal government that seriously downplay the likelihood of sea-level rise and floods.”
These condos have multiple floors of parking garage on the lower levels – more of a protection from storm surge which has not increased in recent years.
Of course the big difference is that the housing bubble had facts to support it. And Burt was by no means the only one predicting the crash.
So with that in mind, I always read these sorts of pieces and wonder if these guys are actually making a play contrary to their stated position, and this is an effort to get prices down.
I live in a good sized house, heated with natural gas in the suburbs, and an inground pool. If climate change is the threat they claim it is, my house is essentially worthless as it’s proximity to the city core and the energy used to keep it warm in the winter and cool in the summer make it a white elephant.
Most people don’t live on the coasts. Most live in the suburbs and most people need a lot of energy to live their daily lives. SLR is the last of most people worries.
Had the Obamas been smart investors, they would have waited for rising seas to sink the price of their coastal acquisition. ;>)
“Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by climate change denial.”
Not really about climate change denial.
Make it “Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by xyz.” and anything goes with “xyz”
– fashion scandal
– fake gardening hydraulics
– sundowners blame
– unlocked toilet seat / belts / search / throttled engines / ….
It’s Deutsche Bank, stock markets, the Anglo-Irish / Irish-Anglo celtic tigers
https://www.google.com/search?q=subprime+mortgage+Irish+tiger&oq=subprime+mortgage+Irish+tiger&aqs=chrome.
rule of the thumb. Anything goes. Wrong. For all the weakly christianed others.